A creditor arrangement is a procedure intended for both individuals and companies, and in this article we will focus on the field of companies. In general, the purpose of the procedure is to allow the company to pay off its debts to the various creditors, from banks and suppliers to employees, and in the meantime it will be able to continue to maintain its activities. However, this can also occur in the context of the liquidation of an insolvent company, which actually leads to the liquidation of its activity.
Settlement of creditors without dissolution of the company
If the company is unable to pay the debts, it is possible to start the procedures leading to recovery, which gives the possibility of industrial peace for a period of time. The move called insolvency and financial rehabilitation makes it possible to formulate a recovery plan, through a trustee appointed by the court. The plan should clarify how the company’s activities will continue, how the profits will be generated and hence how the debts will be repaid. In addition, the plan details the owners of the company’s obligations and rights, and brings different scenarios and their consequences.
It should be noted that there is no obligation to go to the court, and there is an option to go to the creditors first in order to formulate an arrangement. That is, to reach agreements about how the debts will be paid, for example in a longer spread, by a certain reduction and the like. This saves valuable time and multiple expenses, but the disadvantage is that there is no freezing of procedures, so the company can find itself both with a settlement and with procedures being conducted against it.
Settlement of creditors with dissolution of company
Any bankruptcy lawyer will be able to explain to you that the liquidation of a company is accompanied by a settlement of creditors. Involuntary liquidation of companies is often done due to the inability to pay debts that are currently or in the future. Here the procedure goes through the district court and the appointment of a temporary liquidator, whose main role is to safeguard the assets and resources of the company in order to cover its debts.
Also, in this process, the liquidator covers the assets into a fund from which the payments to the creditors will be made. This, according to Arrangement with creditors At the top of the list are entities that have encumbered real estate such as the Tax Authority, and creditors with permanent liens on other owners such as the banks. This is in addition to those with special liens such as cautionary notes on properties, and then the liquidation expenses themselves are on the list. Further down the list are the employees, followed by ordinary secured debts and funds to the shareholders.
